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: Social Security’s COLA spike would still leave problems for many seniors


The expected surge in the 2023 Social Security cost-of-living adjustment, or COLA, would be a gain not seen in four decades, but it still leaves millions of seniors in poverty.

Based on recent inflation figures, some experts forecast that the 2023 COLA could be as high as 8.7%.

A COLA of 8.7% is extremely rare and would be the highest ever received by most Social Security beneficiaries alive today, according to the Senior Citizens League, a nonpartisan group that represents seniors. There were only three other times since the start of automatic adjustments that it was higher (1979-1981).

Read: Your Social Security check may be a lot bigger next year. Now here’s the bad news.

Still, considering the high number of seniors that rely on Social Security for half to nearly all of their income, the older population has ample struggles to bear – even with a hefty raise.

“Social Security levels for most people are inadequate,” said Teresa Ghilarducci, the Schwartz Professor of Economics and Policy Analysis at the New School. “The poverty rate has not budged. It’s still the highest among wealthy nations.”

According to the Social Security Administration, half of the U.S. population aged 65 or older live in households that receive at least 50% of their family income from Social Security benefits. About 25% of aged households rely on Social Security benefits for at least 90% of their family income.

The average benefit for retirees was $1,669 a month as of June 2022, according to the SSA.

Read: This is what the Social Security crisis looks like

“Social Security benefits have become a much more important source of income. Social Security had always been described as one part of a three-legged stool that included savings and pensions. But pensions are largely gone and many people are not able to save enough during their working careers for retirement,” said Mary Johnson, Social Security and Medicare policy analyst with the Senior Citizens League.

Read: How working past 65 can affect your Medicare, Social Security, HSA and taxes

“People are living longer, into their 90s. Social Security was enacted when the average lifespan was 66. We need to do more to keep more seniors out of poverty,” Johnson said. “The marketing that’s done about seniors shows them as remarkably carefree. It’s so unrealistic and sets up unrealistic expectations. We need to talk about how to feed ourselves and our cats for the next 30 years. It’s important. It’s really serious stuff.”

According to a 2021 report by the Congressional Research Service, about 8.9% of aged individuals 65 or older had income below the poverty thresholds in 2019. However, the number of aged poor has increased since the mid-1970s as the total number of older Americans has grown. In 2019, 4.9 million people aged 65 and older lived in poverty. 

Even more seniors are considered financially insecure.

According to the National Council on Aging, more than 15 million older Americans – or roughly one in three – aged 65 or older are economically insecure or living at or below 200% of the federal poverty level or $25,760 per year for a single person in 2021. 

COLAs are designed to help maintain the buying power of Social Security benefits when prices rise. They are a permanent increase that will gradually boost the total Social Security income that individuals will receive over the course of their retirement. 

But is the increase enough to make up for inflation? 

“The idea of an all-time high gets people excited, but there’s no guarantee this will offset the increased cost of housing, food and medical costs seniors see,” said U.S. Bank Wealth Management’s vice president and wealth planner Nicole Birkett-Brunkhorst.

Based on inflation through August 2022, the Senior Citizens League calculated that the COLA for August 2022 has fallen short on average by 48%. The Social Security benefit is short about $43.80 per month, on average, and by a total of $417.60 a year to date.

The Senior Citizens League urged boosting benefits through a cost of living allowance that targets what the elderly spend money on, boosting survivors’ benefits, adjusting the taxation of Social Security benefits, and having a minimum COLA increase in years when there is deflation.

COLA is currently tied to the Consumer Price Index for urban wage earners, an index that fluctuates heavily in relation to gas prices, as well as items such as apparel. While gas prices have fallen, housing costs, medical costs and food costs – items that the elderly spend a large percentage of money on – all continue to rise, Johnson said. As a result, the COLA should be based on the Consumer Price Index for the elderly, Johnson said.

Social Security payments are crucial for retirees, being the primary source of income for 69% of retirees, according to the Transamerica Center for Retirement Studies’ most recent report on retirees.

“There’s a high percentage of people in poverty. Getting by on $1,600 to $1,700 just doesn’t go very far,” said Catherine Collinson, president and chief executive officer of nonprofit Transamerica Institute. “It’s a call to action for all of us. The seniors who are just getting by don’t have a tremendous voice. We need to give it more focus so they can live in dignity.”

Retirees have an estimated median of $45,000 in household savings, excluding home equity. Still, many have much less: 21% have savings of less than $50,000, while 16% do not have any savings. About 33% retirees have savings of $100,000 or more, the Transamerica Center for Retirement Studies report found.

Prior to the pandemic, retirees reported an annual household income of $29,000 (estimated median). And 27% reported having an income of less than $25,000, the report found. 

Ghilarducci said a better idea than an across the board percentage increase would be paying the same amount – an estimated $144 a month for a retiree on the average monthly benefit, according to the Senior Citizen League forecast – as a flat monthly rate for each retiree. 

As a result, a retiree making $900 a month in Social Security would get $144 a month and would benefit a lot more than getting an 8.7% increase. A retiree making $4,000 a month would still get $144 a month.

“It’s more meaningful to the retiree making $900 a month and doesn’t cost the system anymore. It would bring the bottom closer to the middle and help close the gap,” Ghilarducci said.

Still, the large expected COLA hike is an increase that will help, Collinson said. 

“The COLA is welcomed news. Inflation is hitting everyone in different ways. Any increase is welcomed,” Collinson said.

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